TJX Is Still A Bit Expensive, Despite The 16+% YTD Drop

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 |  About: TJX Companies Inc. (TJX)
by: Jeroen Jongbloed

Summary

Shares in TJX have dropped by over 16% YTD. Still, I'd rather wait for them to go down a bit more.

Profit margins are at 10 year highs.

Balance sheet perfection: Low long term debt and over $2.3 billion in cash.

Large stock buybacks boost the company's EPS growth rate.

Shares in The TJX Companies (NYSE:TJX) have dropped by 16.3% year to date and are now trading at $53.34, slightly above their 52-week low of $50.31. The company failed to meet analyst expectations in the most recent 2 quarters, which sent shares downwards.

TJX PE Ratio (NYSE:TTM) data by YCharts

The drop in share price came after a 53.1% increase in 2013 which pushed the price of shares to over 20 times trailing twelve month earnings. At current levels, shares in the company are still valued at 18.1 times trailing earnings, which is slightly above the 5 year average price to earnings ratio of 17.2.

TJX EPS Diluted (5 Year Growth) data by YCharts

TJX's EPS growth has been nothing short of amazing. The 5 year EPS growth rate stands at an amazing 24.1%. For the current fiscal year, analysts expect earnings per share to reach $3.14, which is 11.0% higher than in fiscal year 2014. The forward price to earnings ratio stands at 17.0. Average estimates for EPS in the next fiscal year stands at $3.55, which would be a further 13.1% increase.

TJX Profit Margin (TTM) data by YCharts

Over the past decade, TJX has been able to increase its profit margin at quite a high pace, reaching 7.7% in the most recent 12 months. The increase in profit margin, combined with large share repurchases, has allowed the company to grow EPS at an average rate of 24.1% over the past 5 years, despite the fact the 5 year revenue growth rate stands at only 7.6%. For the current fiscal year, the company is expected to have $29.1 billion in revenues, which is an increase of 6.2% to last year's $27.4 billion.

At the current market cap of $37.35 billion, TJX has a trailing twelve month price to sales ratio of 1.3, which is quite a bit higher than its 5 year average p/s ratio of 1.1.

TJX pays a dividend of $0.17 per quarter, which gives it a yield of 1.31% at current prices. This may not be a very high yield, but considering the fact the payout ratio stands at only 19.3% over the past 12 months, it does have plenty of room to grow. The company also returns a lot of capital to its shareholders by repurchasing shares. Over the past 12 months, the company spent $1.40 billion to buy back its own stock. For comparison, total costs for the dividend over the same twelve months were only $412.7 million.

TJX Current Ratio (Quarterly) data by YCharts

TJX's balance sheet looks really good, with the current ratio standing at 1.68. As is common with companies that need a lot of inventory, the quick ratio is significantly lower, at only 0.62. TJX has over $2.3 billion in cash and short term investments, which is equal to $3.31 per share. The long term debt is only $1.27 billion, which is very low for a company of this size.

Conclusion:

TJX's price per share has gone up by over 53% in 2013, and is now coming down to more reasonable levels. However, both the p/e and the p/s ratios are still a bit above historical averages. The company has a dividend yield that's quite low at the moment, but there's plenty of room for growth. Share repurchases should continue to boost EPS, and profit margins are higher than they've been at any time over the past decade. The balance sheet for TJX looks very good, with over $2.3 billion in cash and short term investments.. I believe a forward p/e ratio of 15 would provide me with a decent margin of safety. This means I will be buying TJX if and when the price drops to $47.10.

Disclaimer: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. It is up to investors to make the correct decision after necessary research. Investing includes risks, including loss of principal.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.